Short answer
A car lease can be halal if it is a true rental: a fixed monthly payment to use a car the leasing company owns. Problems come from interest on late payments, clauses that make you carry the owner's risks, or a hidden loan. Many Hanafi muftis allow a standard lease if you pay on time and no interest is charged to you; an Islamic ijara lease avoids the issues.
Renting (ijarah) a car for a known rent and period is permissible, even if the rent is calculated with reference to an interest benchmark. A lease becomes defective when it includes an interest-bearing loan, penalty interest, or makes the lessee bear the risks of ownership. A lease that ends in ownership must not tie the sale to the lease in one contract.
The four schools agree on this.
Explanation
In a lease you do not borrow money. The leasing company owns the car and rents it to you for, say, 36 months. Renting is lawful: one of the daughters in Madyan said of Musa, "O my father, hire him" (28:26), and hire and rent are the same contract in fiqh. A lessor may set the rent however he likes, even using an interest rate (the "money factor") as a benchmark, as long as the rent is fixed and known.
Points to check in the contract:
- Ownership risk. In Islamic law the owner carries the risk of the car being destroyed through no fault of yours. The Prophet ﷺ said that profit goes with liability, and he forbade profit on what one does not carry the risk for. Many conventional leases make you liable for a total loss, usually through compulsory insurance or GAP cover.
- Late fees. A charge the lessor keeps for paying late is riba. See Are late fees haram?
- Purchase option. An option to buy at the end is fine; a lease that automatically becomes a sale is two contracts in one.
- Hidden loan. Some "leases" are really a finance agreement with an APR. Those are interest loans.
Hanafi muftis differ on how much these clauses spoil a conventional lease. Many allow it as a rental when you will always pay on time and the insurance is a legal requirement; others advise an Islamic ijara lease, which is built to avoid these problems. Read your contract with a mufti. For buying with finance, see Is car finance haram?
Ask a mufti about your own case. This answer explains the general ruling. When the details of your situation matter, as they do here, ask a qualified mufti and give them the full facts. Where to ask a scholar.
The evidence
Quran, Surah Al-Qasas 28:26
قَالَتْ إِحْدَىٰهُمَا يَٰٓأَبَتِ ٱسْتَـْٔجِرْهُ ۖ إِنَّ خَيْرَ مَنِ ٱسْتَـْٔجَرْتَ ٱلْقَوِىُّ ٱلْأَمِينُ ﴿٢٦﴾
One of the women said, "O my father, hire him. Indeed, the best one you can hire is the strong and the trustworthy."
Hiring and renting are lawful contracts.
Quran, Surah Al-Maaida 5:1
بِسْمِ ٱللَّهِ ٱلرَّحْمَٰنِ ٱلرَّحِيمِ يَٰٓأَيُّهَا ٱلَّذِينَ ءَامَنُوٓا۟ أَوْفُوا۟ بِٱلْعُقُودِ ۚ أُحِلَّتْ لَكُم بَهِيمَةُ ٱلْأَنْعَٰمِ إِلَّا مَا يُتْلَىٰ عَلَيْكُمْ غَيْرَ مُحِلِّى ٱلصَّيْدِ وَأَنتُمْ حُرُمٌ ۗ إِنَّ ٱللَّهَ يَحْكُمُ مَا يُرِيدُ ﴿١﴾
O you who have believed, fulfill [all] contracts. Lawful for you are the animals of grazing livestock except for that which is recited to you [in this Qur'an] - hunting not being permitted while you are in the state of ihram. Indeed, Allah ordains what He intends.
A lease binds both sides to its lawful terms.
Sunan Abi Dawud 3508
Grading to be checked... قال رسول الله صلى الله عليه وسلم الخراج بالضمان ...
"Profit goes with liability."
The one who earns from an asset must carry its risk.
Jami' at-Tirmidhi 1234
Graded hasan sahih... لا يحل سلف وبيع ولا شرطان في بيع ولا ربح ما لم يضمن ...
"A loan combined with a sale is not lawful, nor two conditions in one sale, nor profit on what one does not bear the risk for."
Rules out leases that hide a loan or shift the owner's risk.
Where the ruling is recorded
- al-Hidaya, Kitab al-Ijara. The conditions of a valid rental and the owner's liability for the rented thing.
- An Introduction to Islamic Finance (Mufti Taqi Usmani), Chapter on Ijarah. Contrasts conventional financial leases with a valid ijara.
This answer is pending review by the scholars on our team. Quran translation by Sahih International. Hadith Arabic from the standard editions of the six books and the Muwatta, with gradings as recorded there; the English is our own rendering. Spotted a mistake? Tell us.